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In a fuel’s paradise

The future of Indian energy is not about truisms. It’s about intelligent estimations and clear-headed ground realities, writes Pramit Pal Chaudhuri.

india Updated: Sep 19, 2007 23:55 IST

If the hot air generated by the debate about India’s energy future was captured, one smallish city could probably be guaranteed light for a year. Unfortunately, the only certainty is that all India’s cities will be suffering blackouts for years to come. Prime Minister Manmohan Singh has warned energy is potentially the economy’s primary bottleneck. If India falls flat in the coming decades, it could well be because the economy found itself running on empty.

The energy debate is driven less by sense than sensibility. Proponents of impossible pipelines, nuclear naysayers and their ilk take stances that are more soft-headed than hard-nosed. When talking about amperes and thermal units, it’s best to leave the ideology and focus on economics.

Energy is not a tale of certainties. If anyone says he is certain the future does not lie in nukes, that coal will be king forever, that wind energy will save the planet — be sure this is from a crystal ball not a computer. The Kirit Parikh committee report on an Integrated Energy Policy urges “India pursue all available fuel options and forms of energy”. Energy security lies in diversity. There are too many unknowns, too many variables.

The future of Indian energy is not about truisms. It’s about intelligent estimations and clear-headed ground realities. Here are some of them.

Nuclear power can play a major role in India’s energy future. This simple assertion is being denounced by opponents of the Indo-US civilian nuclear deal. One argument goes like this: after decades of effort, the Department of Atomic Energy has only been able to generate 3,300 MW today. Therefore talk of generating 20,000 MW, let alone 60,000 MW, is just pie in the sky. This forgets the primary reasons India’s nuclear programme was so stunted. First, sanctions deprived it of nuclear fuel. Second, its few reactors had to sustain the arsenal and therefore could not attract private capital. One purpose of the Indo-US nuclear deal was to end the first constraint. The government plans to open nuclear power to the private sector and break the second constraint.

After that, how many reactors India builds is really a matter of how many fuel contracts are signed and how much capital flows into the sector. It could be five reactors. It could be 500.

Another claim of nuclear sceptics is to say it’s too expensive. This is genuinely specious. This school tends to cite the pathetic situation of the US nuclear industry, a sector that died after the Three Mile Island accident. The world leaders in atomic energy are France and Japan. ExternE, a comprehensive European study of the long-term costs of nuclear power, concluded it “incurs about one-tenth the costs of coal”. It is true reactors cost an arm and a leg to build. But fuel and running costs are rock bottom. In any case, if nuclear power doesn’t add up, why are Tata, Reliance and other Indian firms lining up to enter the reactor business?

The hydrocarbon question is really about efficiency. No one believes coal and oil are going to disappear from India’s energy profile. Almost all projections assume coal will provide half the country’s energy for decades to come. Oil’s share should fall from roughly one-third to about one-quarter by 2030 if the third hydrocarbon, natural gas, comes into its own. The real coal and oil conundrum in India is about efficiency.

Coal in India is the Stone Age energy sector. Coal India methods are so backward it abandons millions of tons below 150 metres and doesn’t explore below 300 metres. When coal leaves a mine in India it is globally competitive. By the time it reaches its customer, it is so expensive it makes more sense to import coal from South Africa and Australia. If the sector is left in the hands of politicians, India may one day be importing its coal while its reserves are pushing up daisies.

Oil is marginally better. The fundamental issue: the oil sector has become so entangled in a web of subsidies, taxes, excise duties and so on that no one is certain who walks off with what portion of its sale price. Last year, energy analysts believe, the nationalised oil firms had to subsidise domestic oil price to the tune of $ 10 billion. But as the Parikh reports points out, if the subsidies went to the poor they were meant for, the bill shouldn’t be more than $ 2.5 billion.

Coal and oil are writ large in India’s energy future. But the waste, corruption and lethargy that exist in both sectors mean Indians will pay too much for both, politicians will benefit more than they should and the country will unnecessarily buy more of both from overseas. The story here is not about reserves and imports. It’s about domestic reform.

Pipelines and owning oilfields are a sideshow. Indian oil firms buying oilfields overseas is still Page One news. The tortured negotiations over various gas pipelines get space on page 10. No surprise there: developing countries get a little puffed up at the idea of owning black gold reservoirs. Ministers are happy to push pipeline projects: the contracts are big, the vision thing evident and the media coverage extensive.

The truth is owning an oilfield doesn’t give you an advantage if a world oil crisis breaks out. Having an oilfield on their soil won’t stop Nigeria or Saudia Arabia from charging the going market rate. Worse, the market decides where your oil will be sold, not you. China has huge oil investments in Sudan. Embarrassingly, most of this oil goes to Japan because they offer a bit more money. Only about 20 per cent of all the oil that Beijing has bought around the world actually makes it back to China.

Buying oilfields is even sillier when the nation’s economic growth rate is touching 10 per cent. As a recent study by Dan Rosen and Trevor Houser has shown that even if Beijing repatriated every drop of overseas oil it owned back home, it wouldn’t cover even a fifth of the country’s imports. In India, the figure is less than 5 per cent. So be proud of India’s overseas oil empire, but keep in mind it is no answer to the problems besetting the home front.

Pipelines are similarly more hype than sense. In theory, they are nice ideas. In reality, they are suffocated in politics. Consider the Iran-Pakistan-India pipeline. Even if the US and Iran sorted out their differences 10 years from now, there aren’t enough mad billionaires willing to invest in a pipeline through insurgency-infested Balochistan.

The more basic question: does India need this pipeline in a hurry? Yes, India needs natural gas by the billion cubic feet. And natural gas is arriving in India every week right now — on board ships. Though speculative pipelines from Iran, Turkmenistan and Myanmar receive much attention, the unpublicised gas import success in India is ships from Qatar. In 2005, of the total 221.78 billion cubic feet of liquefied natural gas brought to India, 213.3 billion cubic feet came from Qatari ports. That’s 96 per cent of the total.

That doesn’t mean India shouldn’t pursue pipelines. But any sober assessment would first look at Qatar and ships and at Balochi pipelines second.

Myths about India’s energy market happily muddy clear thinking about the topic. This partly reflects a socialist legacy that has ensured India has only a rudimentary ability to analyse the energy sector, especially at the international level. Again, India needs every energy source it can find. It can’t afford to give up options. The infrastructure investments needed for natural gas may not materialise. Those for nuclear power could take off. Or vice versa. Don’t keep all your energy eggs in one fuel basket.

India already suffers a 10 per cent gap between power supply and demand. During peak demand, the deficit rises to 25 per cent in some regions. Despite this and despite subsidies, as the Parikh committee noted, Indians “pay one of the highest prices for energy in purchasing power parity terms” in the world. That, at least, is fact, not fiction.

Pramit Pal Chaudhuri is Bernard Schwartz fellow at the Asia Society, New York.